PrefBlog

Nice article on pension derisking:

Such pension “derisking” approaches include lump-sum payouts to vested, terminated employees; liability-driven investment (LDI) strategies that match up plan assets with pension liabilities by moving from equities to long-term bonds; and the one currently making headlines — annuitization, the transfer of a sizable percentage of pension obligations to an insurance company for a paid premium. These tactics join more-traditional approaches, such as freezing and closing pension plans. Taken together, they constitute a sea change in pension-plan treatment.

A good US jobs number had the market in a tizzy:

Employment roared ahead in June, indicating the U.S. economy is poised for faster growth as it shakes off the impact of tax increases and budget cuts.

Payrolls rose by 195,000 workers for a second month, the Labor Department reported today in Washington, exceeding the 165,000 gain projected by economists in a Bloomberg survey. The jobless rate stayed at 7.6 percent, close to a four-year low.

Hourly earnings in the year ended in June advanced by the most since July 2011, giving Americans already buoyed by higher home prices more reason to boost household spending, which accounts for 70 percent of the economy. Stocks climbed, while the yield on 10-year Treasuries rose to the highest in almost two years on expectations the Federal Reserve will start trimming $85 billion in monthly bond purchases in September.

The Canadian preferred share market got knocked back, with PerpetualDiscounts losing 51bp, FixedResets off 20bp and DeemedRetractibles down 35bp. The Performance Highlights table was suitably dismal: very lengthy with only one winner; Brookfield issues led the way downwards. Interestingly, the Volume Highlights table is comprised entirely of Royal Bank issues, led by DeemedRetractibles; volume was above average.

There are rumours that European rates will continue low:

The European Central Bank will keep interest rates at record lows for an extended period and could yet cut them further, the bank’s chief, Mario Draghi, said on Thursday.

Less than two hours after the Bank of England gave a steer about future interest rate moves at Mark Carney’s debut policy meeting as governor, the ECB president adopted the same tactic.

“The Governing Council expects the key ECB rates to remain at present or lower levels for an extended period of time,” Draghi told a news conference after the ECB left interest rates at 0.5 per cent, emphasizing that this was the first time that the ECB had done so.

Mind you, European leadership demonstrated during the crisis that they were willing to compromise their personal integrity when this was considered expedient; as for the BoE, Lapdog Carney will do what he’s told and read whatever speech he’s handed. That’s why he was hired. And, I’m afraid, with Parakeet Poloz now in charge of the Bank of Canada, we’re left only with Bernanke as a trustworthy central banker.

There are more jolly bond fund statistics:

Investors have pulled about $60 billion from U.S. bond funds since Federal Reserve Chairman Ben S. Bernanke rattled markets by outlining his plan to end the central bank’s unprecedented asset purchases.
The redemptions foreshadow what’s in store for asset managers when the central bank eventually scales back the $85 billion in monthly purchases of bonds and mortgage securities that investors have come to rely on. Bond funds had $28.1 billion in net redemptions in the week ended June 26, the Washington-based Investment Company Institute said yesterday.

But to put that in perspective:

Overall bond redemptions were less than 2 per cent of total assets.

Here’s another object lesson in regulatory competence and honesty:

[Vincent] Tchenguiz has launched an unprecedented legal assault on the Serious Fraud Office, one of the top agencies for prosecuting white-collar crime in the U.K. After the SFO’s investigation of Tchenguiz’s dealings with an Icelandic bank fell apart last year, he accused the office of malicious prosecution and false imprisonment in a lawsuit filed in the High Court in London in December.

Tchenguiz, who was arrested on suspicion of fraud in 2011, is seeking damages of 200 million pounds ($313 million). And his younger brother, Robert, 52, who was also arrested, filed a similar suit, asking for 100 million pounds.

n July 2012, the High Court ruled that the SFO, under former director Richard Alderman, had misrepresented key facts in the case and directed the SFO to pay Vincent’s 3 million pound legal bill. The agency isn’t appealing the decision.
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The SFO also erred when it alleged Vincent had failed to inform Kaupthing that other banks had prior claims on his real estate; the loan agreement stated that fact more than 100 times.

The SFO’s key mistake was in taking on somebody with the resources to pay a £3-million legal bill. But the rest isn’t surprising.

DBRS confirmed RON.PR.A at Pfd-4(high) [Trend Negative]:

Same-store sales were flat in 2012, yet net sales increased approximately 1.7% to nearly $4.9 billion versus the previous year based on higher sales in the Commercial and Professional Market segment, new store openings, new dealer-owners and improved same-store distribution sales to affiliate dealers. EBITDA margins were negatively affected by weaker gross margins due to promotional activity in a highly competitive environment and higher selling, general and administrative costs. As such, EBITDA declined by approximately 40% to $171 million, marking the third consecutive year of declining EBITDA.

Balance-sheet debt increased notably in F2012 to approximately $328 million, which combined with weakness in operating income to result in further deterioration of credit metrics. Lease-adjusted debt-to-EBITDAR increased to approximately 3.77 times (x) in 2012 versus 2.54x in 2011 and 2.80x in 2010 (improvement in 2011 was primarily attributable to the early voluntary repurchase of debentures) and lease-adjusted EBIT coverage declined to 1.51x in 2012 versus 2.26x in 2011 and nearly 3.7x in 2010.

Going forward, DBRS believes meaningful recovery in Rona’s earnings profile will remain challenging as the Company is expected to continue to face intense competition and a highly promotional environment while Canadian consumers may remain prudent in the uncertain housing and interest rate environment. On June 27, 2013, the Company announced the next phase of its Transformational Plan, which includes the closure of 11 non-profitable stores in Ontario and British Columbia, as well as additional administrative headcount reduction and other cost-cutting initiatives. DBRS expects that a significant improvement in operating performance will be difficult to realize over the near term but EBITDA could benefit from the successful implementation of the Company’s Transformational Plan over the medium term.

Capstone Infrastructure, proud issuer of CSE.PR.A, is making an acquisition by share exchange:

Capstone Infrastructure Corporation (TSX: CSE; CSE.PR.A; CSE.DB.A – “Capstone”) and Renewable Energy Developers Inc. (formerly Sprott Power Corp.) (TSX: RDZ; RDZ.DB – “ReD”) have entered into a definitive agreement (the “Agreement”) whereby Capstone will acquire all the outstanding shares of ReD (the “Transaction”) by way of a share exchange, which will result in a larger infrastructure company with power generation facilities across Canada totalling approximately net 465 megawatts (“MW”) of installed capacity, an attractive pipeline of contracted development opportunities in Canada representing net 79 MW of capacity, and international investments in regulated water and district heating businesses. The Board of Directors of each company has unanimously approved the Transaction.

Under the terms of the Transaction, shareholders of ReD will receive 0.26 of a Capstone common share and $0.001 in cash, which, combined, is currently the equivalent of $1.01, for each common share of ReD. The consideration payable to ReD’s shareholders represents a premium of 10.8% based on the 20-day volume weighted average price (“VWAP”) of ReD’s common shares and Capstone’s common shares on the Toronto Stock Exchange (“TSX”) as at July 2, 2013 of $0.91 and $3.88, respectively. Upon completion of the Transaction, which is valued at approximately $70 million, existing Capstone shareholders and ReD shareholders will own approximately 80% and approximately 20% of the common shares of the combined company, respectively.
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• • Expands Capstone’s renewable power footprint in Canada by adding net 95 MW in operating wind power facilities in Nova Scotia and Ontario.
• • Enables Capstone to access a net 35 MW pipeline of wind power projects with 20-year power purchase agreements (“PPAs”) under development in Nova Scotia, Ontario, Saskatchewan and Quebec, and the option to acquire an additional net 44 MW in wind power projects with PPAs in Ontario. These projects will require equity funding from Capstone in the amount of approximately $60 million over the next two years, with the balance of the projects’ financing requirement to be satisfied with project-level debt.
• • Brings additional proven development and project management personnel with a record of completing renewable power projects on time and on budget.
• • Delivery of the development projects in ReD’s pipeline is expected to be accretive to cash flow over the long term.

Tomorrow’s report will be late, by which I mean Sunday.

It was another day of strong recovery for the Canadian preferred share market, with PerpetualDiscounts winning 56bp, FixedResets gaining 12bp and DeemedRetractibles up 19bp. The performance highlights table is comprised entirely of winners. Volume was on the low side of average, but not bad for a US holiday.

Europe’s back in the news:

A broad market selloff was triggered Wednesday morning by the crumbling of the centre-right government of Portuguese prime minister Pedro Passos Coelho, which has been rocked by the resignations of its finance and foreign ministers in the last two days.

The prospect of the outright collapse of his government has triggered a fresh political crisis in Portugal that is unnerving investors across the continent. The fear is that a political vacuum, followed by polls that could elect an anti-austerity government, or another shaky coalition government, would undermine the reforms and spending cuts agreed in 2011, when the European Union and the International Monetary Fund sponsored a €78-billion Portuguese bailout package.

Lisbon’s main market index, the PSI 20 was down about 5.5 per cent in early afternoon trading, European time though it had been down almost 7 per cent in the morning.
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The government of Greek prime minister Antonis Samaras last month lost one of its two coalition partners in protest of Mr. Samaras’s unilateral decision to shut the national broadcaster, ERT, eliminating almost 3,000 jobs.

In Italy, the government of prime minister Enrico Letta, in office since April, faces uncertainty because former prime minister Mario Monti is frustrated by the slow pace of economic reform and has threatened to withdraw his support.

There are some interesting changes coming in the US securities market:

U.S. securities regulators are set to vote next week to lift an 80-year-old rule that prohibits companies and private funds from advertising to raise capital outside of a public offering.

The Securities and Exchange Commission is required to remove the advertising ban under a 2012 law that sought to ease regulations on financing for startups and small businesses. In a nod to complaints from critics who say the change will open the door to more fraud, the SEC will also propose a separate rule during the July 10 meeting to add some investor protections and make it easier for the agency to monitor the change.
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A third rule scheduled for a vote the same day would block felons and others found culpable of securities-law violations from marketing such deals, which are more lightly regulated than public offers of stock or debt.

Gotta have that third rule! What’s the point of being a big-shot regulator if you can’t indulge in a little extra-judicial punishment every now and then?

David Parkinson of the Globe reminds us that the economy is still shaky:

The ISM’s index, which indicates the pace of service-sector activity in the U.S. economy, slipped to 52.2 for June, its lowest level in more than three years. While any reading above 50 still indicates growth, the index indicates that the pace of growth has been in steady decline; it has fallen in three of the past four months, after hitting a one-year high of 56.0 in February.

Yet the stock market has been somewhere between dismissive and contemptuous toward this erosion in the services ISM. The S&P 500 was up slightly in mid-afternoon trading Monday; over the course of the services ISM’s four-month slide, the S&P 500 is up almost 8 per cent.

OSFI has published Capital Disclosure requirements.

It was another very nice recovery day for the Canadian preferred share market, with PerpetualDiscounts winning 40bp, FixedResets gaining 12bp and DeemedRetractibles up 24bp. There’s a very lengthy Performance Highlights table, but with no clear pattern to it. Volume was above average.

PerpetualDiscounts now yield 5.39%, equivalent to 7.01% interest at the standard conversion factor of 1.3x. Long Corporates now yield about 4.6%, so the pre-tax interest-equivalent spread is now about 240bp, down substantially from the 270bp reported June 26 but still above post-Crunch norms. Note that this week’s figure is not strictly comparable with last weeks figure due to the significant influx of former PerpetualPremiums into the PerpetualDiscount pool but, on a brighter note, is more comparable with older figures than has been the case recently.

Hands up who’s happy it’s not June!

Witness the record $61.7 billion of redemptions in U.S.-listed bond mutual funds and exchange-traded funds through June 24, according to TrimTabs Investment Research. That sum broke the previous monthly high of $41.8 billion, set in the scary days of October 2008.

“The unprecedented liquidation of bonds this month is a dramatic departure from recent trends,” David Santschi, chief executive officer of TrimTabs, said in a statement. “Before June, bond funds had posted inflows for 21 consecutive months.”

In May, Bill Gross’s Pimco Total Return Fund—the world’s largest—saw its first monthly withdrawals since 2011.
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Also whipsawing is the otherwise sleepy $3.7 trillion municipal bond market, where the largest exchange-traded fund tracking the sector had its best two days since 2008 after falling to the cheapest price in two years. The $3.4 billion iShares S&P National AMT-Free Municipal Bond Fund, known as MUB, sold at a record 2.86 percent discount to the value of its assets on June 21 after Federal Reserve Chairman Ben Bernanke said the central bank may moderate purchases of federal and mortgage debt in 2013 and stop them around mid-2014.

The ratio of the yield of munis to those on Treasuries is about 115 percent, the highest since July 2012.

The factoids regarding US municipals is relevant to the Canadian preferred share market, since the motivation for owning them and the broad outlines of the investor base are similar.

OSC expenses are up 5.5% over last year, but revenue is up only a little more than inflation, at 2%. Some say this shows revenue isn’t growing fast enough.

Does this remind anyone of Toronto?

San Francisco’s median house price is poised to surpass $1 million this year after setting a record in May, the California Association of Realtors estimates. The county is the only one in the state with values to set a new high, said Leslie Appleton-Young, chief economist for the group. A limited supply of houses available for sale has allowed condo developers to step in and lure frustrated buyers such as Boortz.
Tishman Speyer Properties LP’s 655 luxury units in two towers south of the financial district, and the first phase of Lennar Corp. (LEN)’s Hunters Point project at a former naval shipyard with 480 studios and townhomes, are both scheduled to break ground today, according to the companies. The projects will add to 709 condos that were under way in the city at the end of May, according to Mark Co., a San Francisco-based firm specializing in condo marketing, the most since 2008.

Well – maybe this part is different:

Buyers have been making down payments of 35 percent in a market awash in wealth from tech workers and overseas investors, Mark said.

Still, SF’s condo boom is small potatoes by Toronto standards:

In March, active condo listings for sale on the MLS rose 8 per cent over last year to hit a record high for the month. At the same time, condo sales slumped 18 per cent. Compounding this growing supply-demand imbalance is the 55,000 new condo units currently under construction in the city, the majority of which are set to hit the market through the rest of the year and into 2014.

San Francisco has a population of only 800-odd thousand, but still!

Oh, boy! Nowadays an eager young kid can get a Bachelor of Boxtickingology!

York University’s business school has created a new specialty program to train business students to become financial regulators – or at least to work with them from within the banking industry.

The Schulich School of Business said Tuesday it has created a new 12-month specialty stream called regulatory affairs for financial institutions as part of its Masters of Finance program.

It was another day of solid recovery for the Canadian preferred share market, with PerpetualDiscounts (yes! They now outnumber PerpetualPremiums!) winning 36bp, FixedResets gaining 10bp and DeemedRetractibles up 18bp. The performance highlights table is suitably lengthy, markedly skewed towards winners. Volume was very low.

Nothing happened today.

It was another day of solid, if slowing, recovery for the Canadian preferred share market, with PerpetualPremiums winning 22bp, FixedResets up 15bp and DeemedRetractibles gaining 5bp. There is another lengthy Performance Highlights table, which pales in comparison only to how long it has been in previous weeks. Volume was above average.